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China Reins in Lending for Stock Trading

November 13, 2015 7:05 AM

Associated Press

FILE - a man is reflected on an electronic stock indicator of a securities firm in Tokyo. From Australia to Zambia, Chile to Indonesia, the pain of China’s sharp economic slowdown is being felt in the form of depressed commodity prices, elevated unemployment and shrunken home prices, Nov. 4, 2015.

China tightened limits Friday on lending to finance stock purchases in its latest step to wind down emergency measures aimed at stopping a market plunge.

The maximum size of such "margin lending" will be cut by half to the equivalent of the amount of cash an investor puts up to buy stocks, down from the previous level of double that amount, the China Securities Regulatory Commission announced.

The move is aimed at strengthening "risk management," the official Xinhua News Agency said.

Regulators are unwinding emergency measures after stock prices began to rebound from a plunge that started in June. The market benchmark, the Shanghai Composite Index, has risen 9 percent over the past month.

Before the June slump, the index soared more than 150 percent starting late last year after state media said shares were inexpensive. That led investors to believe Beijing would step in to prop up prices if necessary.

Regulators began tightening controls on "margin lending" early this year for fear traders were borrowing too much.

The stock bubble burst after an unrelated change in banking rules in early June made investors think Beijing's support might be weakening. That prompted the government to reverse course and allow easier margin lending to prop up prices.

Regulators began winding down their emergency measures in September by allowing companies that already were publicly traded to resume raising money through sales of additional shares.

Last week, the government announced an end to a moratorium on new initial stock offerings.